A company wants to raise $2M using a Rights Issue.

- Shares are currently trading at $4

- Subscription Price is $3

How many shares will be issued ?

Question

A company wants to raise $2M using a Rights Issue.

- Shares are currently trading at $4

- Subscription Price is $3

How many shares will be issued ?

BlackTom AI · Accepted Answer

We need to determine how many new shares must be issued in a rights issue to raise $2,000,000.

Key relationship: Funds raised = (Number of new shares) × (Subscription price per share).

Given the subscription price is $3, the basic calculation is:

Number of new shares = $2,000,000 ÷ $3 ≈ 666,666.666...

Since you cannot issue a fraction of a share, the practical options are:

- If we round down to 666,666 shares, the funds raised would be 666,666 × $3 = $1,999,998, which is $2 short. This might be adjusted by issuing an additional fractional-capital unit if allowed, or by setting a small final adjustment.
- If we round up to 666,667 shares, the funds raised would be 666,667 × $3 = $2,000,001, which is $1 more than the target. In practice the exact target could be achieved by a small call-back or by adjusting the number of shares via a post-issue settlement.

Therefore, the mathematically precise result is 666,666.666… shares, but since shares must be whole numbers, the issuer would typically issue 666,667 shares to meet or slightly exceed the $2,000,000 target, accepting a $1 overfunding (or arrange a minor adjustment as allowed by the terms of the rights issue).

Additional context (optional): the current share price of $4 is higher than the subscription price of $3, indicating a discount for rights holders, which is typical in rights issues to encourage participation. This price difference does not change the basic calculation for funds raised, but it explains why investors may find value in exercising their rights.

BFIN011 Week 7: Practice Quiz

A company wants to raise $2M using a Rights Issue. - Shares are currently trading at $4 - Subscription Price is $3 How many shares will be issued ?

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